Postmortem Strategies
In the past, many individuals with large IRA or qualified plan account balances used strategies to stretch out the time over which beneficiaries could take distributions from the account. The objective was to retain the tax-deferral benefit of keeping the money in the account as long as possible. Now, these planning methods are enhanced by the ability to delay the final designation of a beneficiary until well after the account owner's death.

One strategy that should prove significant is the use of a "disclaimer" by a named beneficiary to "pass" part or all of an account to children or grandchildren. When properly implemented, this strategy may save income and/or estate taxes.

Example: Charlene names her husband Jack and daughter Diane as co-beneficiaries of her 401(k) plan account. Charlene, age 50, dies in 2003. Jack doesn't need the money and legally disclaims all benefits from the account so that Diane receives the full benefit. Under the old rules, the designated beneficiaries were set at the time of Charlene's death, and a disclaimer by Jack would have no impact on the computation of the RMDs from the account. Now, Jack's timely disclaimer before September 30, 2004, will leave Diane as the sole designated beneficiary, and the entire account may be distributed over Diane's life expectancy. Moreover, if all tax requirements are met, Jack will pay no gift or income taxes on the disclaimed money and will not have to include it as part of his taxable estate.

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